Bronfman-Schron Making $200m on Discount Exit

Discount is now the second Israeli bank, after Leumi, without a controlling shareholder.

Matthew Bronfman and Rubin Schron will likely earn some $200 million from the gradual sale of their controlling stake in Israel Discount Bank.

The group sold the first tranche of shares – some 7% of its 25% holding – on Tuesday for 500 million shekels (around $140 million). They plan to sell their remaining 18%-stake in Israel’s third-largest bank, and have already surrendered their status as controlling shareholders, as required by Israeli banking regulations.

“The divestment of the Bronfman-Schron group from Discount Bank and the exit of the Edgar Bronfman family from its Israeli businesses has no connection with Matthew Bronfman’s business plans,” said one figure who is close to Bronfman and who asked not to be identified, adding, “Matthew Bronfman has been and remains committed to Israeli businesses, which he intend to maintain and expand.” Bronfman is a scion of the Canadian family that earned its wealth through its eponymous liquor business.

Bronfman-Schron bought its stake in Discount Bank in 2005, for 1.3 billion shekels. The value of the stake, based on the sale price of the shares it sold Tuesday, is now 1.75 billion shekels, representing 34% profit, or an annual return of 3.4%. However, the two investors will enjoy much greater gains in dollar terms due to the appreciation of the shekel since they bought the shares.

When they bought their stake, the shekel traded at 4.38 to the dollar, meaning the shares cost them $300 million. The exchange rate is now around 3.53, meaning the shares are now worth $500 million. That boosts the dollar return on their investment to 66%, or 5.8% per year. For the sake of comparison, the Tel Aviv Stock Exchange benchmark TA-25 index yielded a return of 160% during the same period.

During the time the group held Discount Bank, the bank paid out one sizable dividend, of 250 million shekels, but the gains accruing to Bronfman and Schron were almost entirely swallowed up by a right offering they subscribed to.

Banks Supervisor David Zaken has given Bronfman-Schron two years to dispose of their holdings in the bank, with a possible one-year extension after which the Bank of Israel could order the immediate sale of the remainder. The group expects to sell its remaining 18% stake within four months. In an announcement to the Tel Aviv Stock Exchange on Tuesday, the Bronfman-Schron group said it informed the central bank in October and again last week of its intention to sell its stake in Discount Bank.

The end of the Bronfman-Schron group’s control of Discount Bank will make it the second Israeli bank, after Bank Leumi, to lack a controlling shareholder. This comes at a time of transition at the bank, with Lilach Asher-Topilsky replacing Reuven Spiegel as CEO in April.

Sources in Israel’s banking sectors say the absence of a controlling shareholder is likely to increase the power of Discount Bank’s rather militant union, whose battle with management has led to slowdowns.

In its announcement to the TASE on Tuesday, Bronfman-Schron said it had sought a single buyer for its stake in Discount Bank, but failed, in part due to the conditions set by the Bank of Israel. Buyers must commit to injecting capital into the bank and are prohibited from mortgaging their controlling share and from maintaining significant holdings in companies outside the financial sector.

Bronfman arrived on the Israeli business scene in 2003, when he acquired control of retail group Blue Square together with Israeli investor Shalom Fisher. They sold the company four years later and acquired a stake in Super-Sol, Israel’s biggest food retailer. In 2005, Bronfman acquired the Israel franchise of Sweden’s Ikea for about NIS 200 million shekels, Today, the business is valued at one billion shekels.

Ofer Vaknin